Modvat credit on leased capital goods cannot be denied merely because the lessor is not a financing company under RBI norms.

Modvat credit on capital goods taken on lease was treated as available under Rule 4(3) even where the goods were obtained through lease, hire purchase or loan arrangements from a financing company. The status of the lessor under RBI norms was held not to justify denial of credit at the stay stage, and no sufficient basis was found to require deposit of duty pending appeal. The denial of credit was therefore not sustained for pre-deposit purposes, and unconditional stay was granted.

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Issues: Whether Modvat credit on capital goods taken on lease could be denied on the ground that the lessor was not a financing company under RBI norms, and whether any amount was required to be deposited pending appeal.

Analysis: Rule 4(3) was treated as permitting credit on capital goods even where the goods are obtained on lease, hire purchase, or loan arrangement from a financing company. The restriction applied by the lower authorities, based on the status of the lessor under RBI rules, was held to be unwarranted at the stage of considering stay, and no justifiable basis was found to insist on a deposit of duty.

Conclusion: The denial of credit was not sustained for the purpose of pre-deposit, and unconditional stay was granted in favour of the appellant.

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